What does it take to qualify for a home loan in California? What are the basic requirements for approval? Do I need good credit? A big down payment? These are all common questions among home buyers, especially first-time buyers who are new to the process. Today, we will look at some of the most common California home loan requirements you might encounter in 2017.
California Home Loan Requirements in 2017
Below, you’ll find an overview of down payments, credit scores, loan limits, debt ratios and more. These are some of the most common California home loan requirements in 2017. So you definitely want to be familiar with them.
Down Payment Requirements in California
Down payments are one of the most important mortgage requirements in California, because it’s an upfront expense you have to pay at closing.
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Here are some things you should know right off the bat:
- You don’t necessarily need a down payment of 20%.
- You might be able to get a home loan with as little as 3% down.
- In many cases, the money can be provided by a third party as a gift.
- Military members can use VA loans to buy a home with nothing down.
Down payment requirements vary based on the type of loan and other factors. Different mortgage programs come with different minimum investment requirements.
- The minimum down payment for a conventional home loan (one that is not insured or backed by the federal government) can be as low as 3%.
- FHA loans, which are insured by the federal government, require a down payment of at least 3.5%. Specifically, that’s 3.5% of the purchase price or the appraised value, whichever is less.
- If you are a military member, you are probably eligible for a VA-guaranteed home loan. In this case, you could buy a house with no down payment whatsoever. The VA loan program offer 100% financing, often without the need for mortgage insurance.
Here’s some good news regarding this California home loan requirement. The down-payment funds don’t necessarily have to come from your own pocket. These days, many different types of mortgage loans allow for down payment “gifts” from friends, family, employers, and other approved sources.
Credit Score Requirements
A good credit score will improve your chances of qualifying for a mortgage loan, while a bad score could make it harder to qualify. Thus, credit scores are another important home loan requirement for California mortgage shoppers.
The FICO credit score, which is commonly used by mortgage lenders, ranges from 300 to 850. A higher score is better, when it comes to home loan approval.
Different lenders have different standards for credit scores, and how much emphasis they place on them. So a low score, in and of itself, may not necessarily be a deal-breaker. Generally speaking, mortgage lenders prefer to see a score of 600 or higher for loan approval in California. But this number is not set in stone.
Loan Limits in California
Different loan programs have different size limits associated with them. There are limits for conventional, FHA and VA loans. They vary by county and property type.
For instance, the 2017 conventional loan limit for a single-family home in San Diego County is $612,950. Anything above this amount would be considered a “jumbo” mortgage and might come with a higher down-payment requirement and stricter qualification criteria.
It would be wise to familiarize yourself with these California home loan requirements before applying for a mortgage. We’ve made it easy for you by creating loan limit pages for all of the major types of mortgage loans:
Debt-to-Income Ratio Requirements
Debt-to-income (DTI) ratios are another important qualification requirement for California home loans. As the name suggests, these ratios compare a person’s debts and income. Lenders review them to make sure a borrower isn’t taking on too much debt, with the addition of the mortgage loan.
Example: A person with a monthly income of $4,000 and total monthly debts of $1,500 would have a DTI ratio of 37.5% (because 1500 / 4000 = .375, or 37.5%). This is known as the total or “back-end” debt-to-income ratio, because it includes all monthly debts such as mortgage payments, credit cards, auto loan payments, etc.
Generally speaking (and there’s the word “generally” again), mortgage lenders prefer to see a back-end DTI ratio no higher than 43%. But, as with many California home loan requirements, this number is not written in stone. Exceptions can be made for otherwise well-qualified borrowers with stable income, cash reserves, excellent credit, etc.
The point is, if your combined or back-end DTI ratio is much higher than 43%, you might have a harder time qualifying for a home loan in California. But don’t let these numbers frighten you. They represent industry trends, not hard-and-fast rules.
When it comes to your debt-to-income ratio, the best thing you can do is avoid opening new credit lines before and during the mortgage process. The same goes for buying a car, applying for a store credit card, etc. These things can increase your debt ratio, which could make it harder to obtain a mortgage loan.
Exceptions to (Almost) Every Rule
Some mortgage requirements vary from lender to lender, while others are more firm. For instance, if you want to use an FHA home loan to buy a house in California, you’ll have to make a down payment of at least 3.5%. That’s an example of a California home loan requirement that applies to all borrowers across the board, with few if any exceptions.
On the other hand, some mortgage loan requirements aren’t necessarily set in stone, and can vary from one lender to the next. Credit scores are a good example of this. The bottom line is you have nothing to lose by talking to a mortgage company, and a lot to gain.
Let’s Talk About Your Loan Options
Are you in the market for a mortgage loan? Do you have questions about California home loan requirements in 2017? We can help.
Bridgepoint Funding has been serving home buyers across the Golden State for more than 15 years. We can help you understand your financing options and choose the right type of mortgage loan for your unique situation.
Please contact our staff to get started. We look forward to hearing from you!